Apmacropracfinal: Multiple Choice

APMacroPracFINAL
Multiple Choice
Identify the choice that best completes the statement or answers the question.
Exhibit 3-2
____ 1. Refer to Exhibit 3-2. Suppose equilibrium is at point B. Something then changes and equilibrium becomes
point . !hich of the follo"ing is consistent "ith the change in equilibrium from point B to #assuming that
this is a normal good$%
a. &here "as an increase in resource prices and income sta'ed constant.
b. &here "as a decrease in resource prices and income sta'ed constant.
c. &here "as an increase in resource prices and income decreased.
d. &here "as an increase in resource prices and income increased.
____ 2. Refer to Exhibit 3-2. Suppose equilibrium is at point (. Something then changes and equilibrium becomes
point . !hich of the follo"ing is consistent "ith the change in equilibrium from point ( to #assuming that
this is a normal good$%
a. &here "as an increase in income and production technolog' ad)anced.
b. &here "as a decrease in income and production technolog' ad)anced.
c. &here "as an increase in the price of a substitute and an increase in "ages.
d. &here "as a decrease in the price of a complement and an increase in "ages.
Exhibit 3-4
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#
d
o
l
l
a
r
s
$
S
, 1- 1, 2- 2, .uantit '
2
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0
1
____ 3. Refer to Exhibit 3-/. 2f this is a competiti)e mar3et4 price and quantit' "ill gra)itate to"ard
a. 50 and 1- units4 respecti)el'.
b. 50 and 2- units4 respecti)el'.
c. 5/ and 1, units4 respecti)el'.
d. 52 and 1, units4 respecti)el'.
____ /. !hich of the follo"ing statements represents a correct and sequentiall' accurate economic explanation%
a. 6 is an inferior good and 7 is a substitute for 6. 2ncome rises4 the demand for 6 falls4 the
price of 6 falls4 and the demand for 7 rises.
b. 6 is an inferior good and 7 is a substitute for 6. 2ncome rises4 the demand for 6 falls4 the
price of 6 falls4 and the demand for 7 falls.
c. 6 is an inferior good and 7 is a substitute for 6. 2ncome falls4 the demand for 6 rises4 the
price of 6 rises4 and the demand for 7 falls.
d. 6 is an inferior good and 7 is a substitute for 6. 2ncome rises4 the quantit' demanded of 6
rises4 the price of 6 rises4 and the demand for 7 falls.
e. none of the abo)e
____ ,. !hich of the follo"ing statements best represents the la" of suppl'%
a. +rice and quantit' supplied are in)ersel' related.
b. +rice and quantit' supplied are directl' related.
c. +rice and quantit' supplied are in)ersel' related4 ceteris paribus.
d. +rice and quantit' supplied are directl' related4 ceteris paribus.
e. +rice and suppl' are directl' related4 ceteris paribus.
____ 0. 2f the +2 is 1-- in the base 'ear and 1/- in the current 'ear4 ho" much did prices rise bet"een these t"o
'ears%
a. /- percent
b. 1/- percent
c. 1./- percent
d. -.1/ percent
____ 8. &he base 'ear is the 'ear
a. in "hich prices are unstable.
b. in "hich prices are lo"est.
c. in "hich prices are highest.
d. that ser)es as a reference point or benchmar3.
e. in "hich nominal output is largest.
____ 1. &he unemplo'ment rate equals the
a. number of emplo'ed persons di)ided b' the number of unemplo'ed persons.
b. number of unemplo'ed persons di)ided b' the ci)ilian non-institutional population.
c. number of unemplo'ed persons di)ided b' the ci)ilian labor force.
d. sum of unemplo'ed persons and discouraged "or3ers di)ided b' the ci)ilian labor force.
____ 9. ( plumber "ho quits his :ob in San *iego and mo)es to ;rlando "here additional plumbers are needed is
said to be __________ unemplo'ed
a. frictionall' c. c'clicall'
b. structurall' d. underemplo'ed
____ 1-. <ross *omestic +roduct #<*+$ is the total mar3et )alue of all
a. final goods and ser)ices produced annuall' "ithin a countr'=s borders.
b. final and intermediate goods and ser)ices produced annuall' "ithin a countr'=s borders.
c. intermediate goods and ser)ices produced annuall' "ithin a countr'=s borders.
d. final goods and ser)ices produced e)er' month "ithin a countr'=s borders.
____ 11. !hich of the follo"ing illustrates double counting%
a. &he total mar3et )alue of the steel used to produce a car and the total mar3et )alue of the
car itself are summed.
b. &he total mar3et )alue of tennis rac3ets and the total mar3et )alue of tennis balls are
summed.
c. &he total mar3et )alue of picture frames and the total mar3et )alue of camera film are
summed.
d. &he total mar3et )alue of e'eglasses and the total mar3et )alue of carpet are summed.
e. b and c
____ 12. !hich of the follo"ing is counted in <*+%
a. the purchase of 1-- shares of >icrosoft stoc3
b. the ser)ices of a real estate bro3er
c. go)ernment transfer pa'ments
d. the sale of a used car
____ 13. !hich of the follo"ing "ould definitel' not be included in the measurement of <*+%
a. )alue of the ser)ices of a painter "ho paints 'our garage
b. )alue of the ser)ices of a person "ho mo"s his or her o"n la"n
c. )alue of the ser)ices of a maid "ho cleans 'our house
d. )alue of the ser)ices of a plumber "ho fixes 'our 3itchen sin3
____ 1/. ( business c'cle refers to the
a. continued expansion in Real <*+.
b. recurrent s"ings #up and do"n$ in Real <*+.
c. continued decline in Real <*+.
d. period "hen Real <*+ gro"s at unusuall' high rates.
____ 1,. !hat does annual economic gro"th refer to%
a. annual increases in <*+
b. annual increases in consumption spending
c. annual increases in in)estment spending
d. annual increases in Real <*+
____ 10. (n aggregate demand #(*$ cur)e sho"s the
a. amount of a particular good people are "illing and able to bu' at a particular price4 ceteris
paribus.
b. real output #Real <*+$ people are "illing and able to sell at different price le)els4 ceteris
paribus.
c. real output #Real #<*+$ people are "illing and able to bu' and to sell at different price
le)els4 ceteris paribus.
d. real output #Real <*+$ people are "illing and able to bu' at different price le)els4 ceteris
paribus.
____ 18. Suppose a drop in stoc3 prices ma3es people feel less "ealth'. &his "ould cause __________ the econom'=s
(* cur)e.
a. mo)ement do"n along
b. mo)ement up along
c. a right"ard shift of
d. a left"ard shift of
____ 11. ( short-run aggregate suppl' cur)e sho"s the
a. amount of a particular good producers are "illing and able to bu' at a particular price4
ceteris paribus.
b. real output #Real <*+$ producers are "illing and able to sell at different price le)els4
ceteris paribus.
c. real output #Real <*+$ people are "illing and able to bu' and to sell at different price
le)els4 ceteris paribus.
d. real output #Real <*+$ people are "illing and able to bu' at different price le)els4 ceteris
paribus.
____ 19. an a change in the price le)el change aggregate demand%
a. 7es4 as the price le)el rises4 aggregate demand falls.
b. 7es4 but onl' under the condition that the real balance effect is operational.
c. ?o4 onl' a change in a nonprice factor can change aggregate demand.
d. ?o4 a change in the price le)el can onl' change aggregate suppl'.
____ 2-. Business taxes fall. &his raises __________4 "hich raises __________ and the __________ cur)e shifts
right"ard.
a. consumption@ aggregate demand #(*$@ (*
b. in)estment@ go)ernment purchases@ (*
c. in)estment@ aggregate demand #(*$@ (*
d. net exports@ aggregate demand #(*$@ (*
____ 21. +ersonal income taxes rise. &his lo"ers __________4 "hich lo"ers __________ and the __________ cur)e
shifts __________.
a. net exports@ aggregate demand #(*$@ (*@ left"ard
b. consumption@ short-run aggregate suppl' #SR(S$@ SR(S@ right"ard
c. go)ernment re)enue@ net exports@ (*@ right"ard
d. consumption@ aggregate demand #(*$@ (*@ left"ard
____ 22. (n econom' is producing its ?atural Real <*+ "hen the rate of unemplo'ment is equal to the __________
unemplo'ment rate.
a. frictional
b. structural
c. sum of the frictional unemplo'ment rate and the structural
d. seasonal
e. c'clical
____ 23. (n inflationar' gap exists "hen (* and SR(S
a. fail to intersect.
b. intersect to the right of ?atural Real <*+.
c. intersect to the left of ?atural Real <*+.
d. both ha)e a positi)e slope.
____ 2/. ( recessionar' gap exists "hen (* and SR(S
a. fail to intersect.
b. intersect to the right of ?atural Real <*+.
c. intersect to the left of ?atural Real <*+.
d. both ha)e a positi)e slope.
Exhibit 8-1
____ 2,. Refer to Exhibit 1-1. &he econom' is currentl' producing .1. (t this le)el of Real <*+4 the econom' is in
a#n$
a. inflationar' gap.
b. recessionar' gap.
c. unemplo'ment gap.
d. high Real <*+ gap.
____ 20. Refer to Exhibit 1-1. &he econom' is currentl' producing .1. 2f an economist belie)es the econom' #itself$
can mo)e to .?4 then he belie)es that the
a. AR(S cur)e "ill shift left"ard until it intersects the SR(S and (* cur)es at .1.
b. (* cur)e "ill shift right"ard and intersect the SR(S cur)e at point B.
c. SR(S cur)e "ill shift right"ard and intersect the (* cur)e at point (.
d. econom' "ill li3el' sta' Bstuc3B in short-run equilibrium.
____ 28. Refer to Exhibit 1-1. &he unemplo'ment rate is lo"er at
a. .1 than .?.
b. .? than .1.
c. point ( than point B.
d. point B than point (.
____ 21. Refer to Exhibit 1-1. &he price le)el is
a. lo"er in short-run equilibrium than in long-run equilibrium.
b. lo"er in long-run equilibrium than in short-run equilibrium.
c. higher in long-run equilibrium than in short-run equilibrium.
d. lo"er "hen the econom' is in a recessionar' gap than "hen it is in long-run equilibrium.
____ 29. Refer to Exhibit 1-1. &he econom' is currentl' producing .1. (n economist "ho belie)es "ages are flexible
in the do"n"ard direction "ould argue that
a. it is li3el' the econom' "ill soon mo)e to point B.
b. it is li3el' the econom' "ill soon mo)e to point (.
c. it is not li3el' the econom' "ill mo)e to point ( on its o"n accord no" or an'time soon.
d. Real <*+ "ill soon ta3e a do"nturn.
____ 3-. !hen there is an inflationar' gap4 #actual$ Real <*+ is __________ ?atural Real <*+4 and the #actual$
unemplo'ment rate is __________ the natural rate of unemplo'ment.
a. greater than@ less than
b. greater than@ greater than
c. less than@ greater than
d. less than@ less than
e. less than@ equal to
____ 31. !hich of the follo"ing statements is true%
a. 2f current Real <*+ is greater than ?atural Real <*+4 the econom' is in a recessionar'
gap.
b. 2f current Real <*+ is less than ?atural Real <*+4 the econom' is in long-run equilibrium.
c. !ages are flexible if the econom' is self-regulating.
d. !ages rise but prices remain constant in long-run equilibrium.
e. (ll economists belie)e the econom' is self-regulating.
____ 32. ( person "ho belie)es the econom' is self-regulating also belie)es that
a. "hen there is a surplus in the labor mar3et4 the "age rate falls4 and "hen there is a
shortage in the labor mar3et4 the "age rate rises.
b. it is better if the econom' is in an inflationar' gap than a recessionar' gap.
c. prices are flexible but "ages are not.
d. the econom' is al"a's in long-run equilibrium.
e. the real balance effect does not operate in a recessionar' gap.
____ 33. 2f total production is greater than total expenditures4
a. there "ill be an increase in sa)ing.
b. there "ill be an increase in in)entories.
c. firms "ill then increase production.
d. firms "ill then increase prices.
____ 3/. &he efficienc' "age model contains the assumption that labor producti)it' __________ the "age rate4 so that
a firm maximiCing its profits __________ pa' "or3ers an abo)e-mar3et "age rate.
a. is independent of@ ma'
b. is independent of@ "ill ne)er
c. depends on@ ma'
d. depends on@ "ill ne)er
____ 3,. &"o economists4 Smith and Dones4 are discussing the currentl' high unemplo'ment rate. Smith sa's that
something ought to be done quic3l' because the econom' ma' not be able to restore itself to full
emplo'ment. Dones sa's that it is better to ta3e a Bhands-offB approach. !hich of the follo"ing is most li3el'
to be true%
a. Smith and Dones are most li3el' both Ee'nesian economists "ith a fe" minor differences
of opinion.
b. Smith and Dones are most li3el' both classical economists "ith a fe" minor differences of
opinion.
c. Dones is li3el' to be a Ee'nesian economist and Smith is li3el' to be a classical economist.
d. Smith is li3el' to be a Ee'nesian economist and Dones is li3el' to be a classical economist.
e. none of the abo)e.
____ 30. !hich of the follo"ing is consistent "ith the classical )ie" of Sa'=s la"%
a. Sa)ing increases b' 52 billion and in)estment decreases b' 52 billion.
b. Sa)ing increases b' 52 billion and consumption rises b' 52 billion.
c. Sa)ing increases b' 52 billion4 consumption decreases b' 52 billion4 and in)estment rises
b' something less than 52 billion.
d. Sa)ing decreases b' 52 billion and consumption decreases b' more than 52 billion.
____ 38. (ccording to Ee'nes4 the pri)ate sector #b' itself$
a. can al"a's mo)e the econom' out of a recessionar' gap.
b. cannot al"a's mo)e the econom' out of a recessionar' gap.
c. can ne)er mo)e the econom' out of a recessionar' gap.
d. can onl' mo)e the econom' out of a recessionar' gap if the SR(S cur)e drops.
e. can onl' mo)e the econom' out of a recessionar' gap if the SR(S cur)e rises.
____ 31. Suppose ongress decreases income taxes. &his is an example of
a. expansionar' fiscal polic'.
b. expansionar' monetar' polic'.
c. contractionar' fiscal polic'.
d. contractionar' monetar' polic'.
____ 39. Suppose the econom' is at a position belo" the institutional production possibilities frontier. 2n response to
this situation4 Ee'nesian economists "ould propose that the go)ernment should __________ purchases4
"hich "ill cause the aggregate demand cur)e to shift to the __________4 "hich4 in turn4 "ill correct this
__________ gap.
a. decrease@ left@ inflationar'
b. increase@ right@ inflationar'
c. decrease@ right@ inflationar'
d. increase@ right@ recessionar'
e. decrease@ left@ recessionar'
____ /-. !ith complete cro"ding out4 an increase in go)ernment spending
a. is completel' offset b' a reduction in pri)ate spending.
b. is matched b' an increase in pri)ate spending.
c. results in an increase in aggregate suppl'.
d. results in an increase in aggregate demand.
Exhibit 10-2
____ /1. Refer to Exhibit 1--2. (t point B4 if "e cut tax rates slightl'4 tax re)enues
a. increase.
b. decrease.
c. "ill not change.
d. drop to Cero.
____ /2. &he econom' is in a recessionar' gap4 "ages are inflexible do"n"ard4 and there is complete cro"ding out.
!hich of the follo"ing is consistent "ith this state of affairs%
a. &he econom' "ill soon self-regulate and produce ?atural Real <*+.
b. Expansionar' fiscal polic' "ill be effecti)e at remo)ing the econom' from the
recessionar' gap.
c. 2f expansionar' fiscal polic' is implemented4 the (* cur)e "ill shift to the right4 and
e)entuall' the price le)el and Real <*+ "ill rise.
d. b and c
____ /3. 2f Smith belie)es the econom' is self-regulating4 then Smith
a. is less li3el' to ad)ocate expansionar' fiscal polic' "hen the econom' is in a recessionar'
gap than Dones4 "ho belie)es the econom' is not self-regulating.
b. is more li3el' to ad)ocate expansionar' fiscal polic' "hen the econom' is in a
recessionar' gap than Dones4 "ho belie)es the econom' is not self-regulating.
c. "ill belie)e that there is Cero cro"ding out4 too.
d. "ill belie)e that "ages are inflexible do"n"ard4 too.
e. b and d
____ //. Barter is
a. the exchange of mone' for goods and then the exchange of those goods for mone'.
b. the exchange of mone' for mone'4 or the exchange of mone' for stoc3s and bonds.
c. the exchange of goods and ser)ices for goods and ser)ices "ithout the use of mone'.
d. an' exchange4 "ith or "ithout the use of mone'4 in "hich the participants negotiate #or
barter$ the price of the goods to be exchanged.
____ /,. &he actual change in the mone' suppl' as a result of an increase in excess reser)es "ill be less than the
maximum change if ban3s
a. do not lend out all of their excess reser)es.
b. borro" from the Federal Reser)e.
c. sell some of their go)ernment securities to the Federal Reser)e.
d. lend onl' their excess reser)es.
____ /0. Suppose Ban3 ( gains 51-4--- in reser)es that Ban3 B loses. 2f both ban3s are sub:ect to the same required
reser)e ratio and are currentl' holding Cero excess reser)es4 then
a. the mone' suppl' rises.
b. the mone' suppl' falls.
c. the mone' suppl' remains constant.
d. chec3able deposits fall.
____ /8. ( ban3 has 51-4--- in excess reser)es and the required reser)e ratio is 2- percent. &his means the ban3 could
ha)e __________ in chec3able deposit liabilities and __________ in reser)es.
a. 51-4---4 51-4---
b. 51--4---4 52-4---
c. 5,-4---4 52,4---
d. 51--4---4 53-4---
____ /1. 2nflation does the greatest harm to mone'=s function as a
a. medium of exchange.
b. unit of account.
c. store of )alue.
d. liquid asset.
____ /9. Raising the required reser)e ratio __________ the simple deposit multiplier and __________ the econom'=s
maximum potential mone' suppl'.
a. raises@ raises
b. raises@ lo"ers
c. lo"ers@ raises
d. lo"ers@ lo"ers
____ ,-. !hich of the follo"ing is not a component of >1%
a. currenc' held outside ban3s
b. tra)eler=s chec3s
c. sa)ings deposits
d. chec3able deposits
____ ,1. &he Board of <o)ernors of the Federal Reser)e is comprised of
a. se)en persons4 each appointed to a se)en-'ear term.
b. se)en persons4 each appointed to a fourteen-'ear term.
c. fourteen persons4 each appointed to a se)en-'ear term.
d. t"el)e persons4 each appointed to a se)en-'ear term.
e. t"el)e persons4 each appointed to a fourteen-'ear term.
____ ,2. !hen the federal go)ernment incurs a budget deficit4 it "ill
a. mint more coins and spend them.
b. create mone' Bout of thin air.B
c. impose a special tax on all income earners.
d. borro" mone' from the Federal Reser)e S'stem b' issuing securities.
e. borro" mone' from the public b' issuing securities.
____ ,3. ( commercial ban3 can recei)e a loan from another commercial ban3 in the
a. federal funds mar3et.
b. ban3 loan mar3et.
c. Fed mar3et.
d. discount mar3et.
____ ,/. &he discount rate is the interest rate
a. ban3s pa' on certificates of deposit.
b. the Fed pa's on reser)es held b' ban3s.
c. the Fed charges "hen it lends reser)es to ban3s.
d. ban3s charge their loan customers.
e. on short-term &reasur' securities.
____ ,,. ;pen mar3et purchases of go)ernment securities
a. are designed to increase trading on the stoc3 exchange.
b. generall' decrease the mone' suppl'.
c. al"a's decrease the mone' suppl'.
d. cause ban3 reser)es to increase.
e. all of the abo)e
____ ,0. +aper mone' is printed at the __________4 but it is issued to commercial ban3s b' the __________.
a. Bureau of Engra)ing and +rinting@ F;>
b. G.S. >int@ 12 Federal Reser)e *istrict Ban3s
c. Federal Reser)e building in !ashington@ *..4 G.S. &reasur'
d. Bureau of Engra)ing and +rinting@ 12 Federal Reser)e *istrict Ban3s
____ ,8. &he president of the __________ holds a permanent seat on the F;>.
a. Gnited States
b. Federal Reser)e *istrict Ban3 of ?e" 7or3
c. Federal Reser)e *istrict Ban3 of San Francisco
d. G.S. Senate ban3ing committee
____ ,1. 2f the federal funds rate falls belo" the discount rate4 ban3s "ill decrease their borro"ings from __________
and __________ their borro"ings from __________. 2t follo"s that "hen one ban3 borro"s from
__________4 reser)es in the ban3ing s'stem __________.
a. other ban3s@ increase@ the Fed@ another ban3@ remain unchanged
b. the Fed@ decrease@ other ban3s@ another ban3@ remain unchanged
c. other ban3s@ increase@ the G.S. &reasur'@ the &reasur'@ increase
d. the Fed@ increase@ other ban3s@ another ban3@ remain unchanged
____ ,9. >onetarists can be described as a group of macroeconomists "ho
a. emphasiCe the importance of the federal go)ernment=s in)ol)ement in the econom' to
dampen the harmful effects of the business c'cle.
b. emphasiCe the importance of the mone' suppl' as a determinant of macroeconomic
acti)it'.
c. tend to )ie" go)ernment spending and taxation polic' as the chief means of stabiliCing the
econom'.
d. feel that mone' should not be created in the pri)ate ban3ing s'stem4 but onl' b'
go)ernment.
____ 0-. !hich of the follo"ing is consistent "ith the equation of exchange%
a. &otal spending must equal the total sales re)enues of business firms.
b. &he mone' suppl' multiplied b' )elocit' must equal <*+.
c. &he mone' suppl' multiplied b' )elocit' must equal the price le)el times Real <*+.
d. a and b
e. a4 b and c
____ 01. &he expectations effect is the
a. increase in the real and nominal interest rates brought on b' an expected increase in <*+.
b. increase in the nominal interest rate due to a higher expected inflation rate.
c. decrease in the real and nominal interest rates due to an expected increase in the suppl' of
loanable funds.
d. idea that people form their expectations of inflation b' considering all a)ailable
information about past4 present4 and future inflation.
e. idea that people form their expectations of inflation b' considering onl' information about
past inflation experience.
____ 02. 2f the simple quantit' theor' of mone' predicts "ell4 "hat "ould "e expect to see #in the real "orld$%
a. changes in the mone' suppl' strongl' correlated "ith changes in interest rates
b. changes in the mone' suppl' strongl' correlated "ith changes in inflation rates
c. changes in Real <*+ strongl' correlated "ith changes in the mone' suppl'
d. changes in )elocit' strongl' correlated "ith changes in the mone' suppl'
____ 03. !hen >ilton Friedman said that inflation is al"a's and e)er'"here a monetar' phenomenon4 he "as
referring to
a. one-shot inflation
b. suppl'-induced inflation
c. continued inflation
d. h'perinflation #high rates of inflation$
e. all 3inds of inflation
____ 0/. &he demand-for-mone' cur)e illustrates the __________ relationship bet"een the quantit' demanded of
mone' and __________.
a. in)erse@ the interest rate
b. direct@ <*+.
c. direct@ the interest rate
d. in)erse@ <*+
____ 0,. 2f the interest rate increases4 the opportunit' cost of holding mone' __________4 and the quantit' demanded
of mone' __________.
a. does not change@ does not change
b. increases@ also increases
c. decreases@ increases
d. increases@ decreases
e. decreases@ also decreases
____ 00. !hich best describes the Ee'nesian transmission mechanism "hen the mone' suppl' rises%
a. &he interest rate rises@ this in turn cuts bac3 in)estment spending4 "hich in turn raises total
expenditures and shifts the (* cur)e right"ard.
b. &he interest rate falls@ this in turn stimulates in)estment spending4 "hich in turn raises total
expenditures and shifts the (* cur)e left"ard.
c. &he interest rate falls@ this in turn stimulates in)estment spending4 "hich in turn raises total
expenditures and shifts the (* cur)e right"ard.
d. &he interest rate falls@ this in turn stimulates in)estment spending4 "hich in turn lo"ers
total expenditures and shifts the (* cur)e left"ard.
____ 08. Suppose the mone' mar3et is in the liquidit' trap and the Fed increases the suppl' of mone'. 2ndi)iduals
"ould rather hold __________ than __________ because the' expect that bond prices can go no __________.
a. bonds@ mone'@ higher
b. bonds@ mone'@ lo"er
c. mone'@ bonds@ higher
d. mone'@ bonds@ lo"er
Exhibit 14-2
S S
1 2
*emand for >one' ur)e
2
n
t
e
r
e
s
t

R
a
t
e
.uantit' of >one'
i
B
i
(
*
1
2
____ 01. Refer to Exhibit 1/-2. (#n$__________ in the mone' suppl' from S1 to S2 "ould ha)e a tendenc' to
__________ the amount of in)estment4 assuming in)estment is sensiti)e to changes in the interest rate.
a. decrease4 raise
b. decrease4 lo"er
c. increase4 raise
d. increase4 lo"er
____ 09. Refer to Exhibit 1/-2. (#n$__________ in the mone' suppl' from S1 to S2 "ould ha)e a tendenc' to
__________ the opportunit' cost of holding mone'.
a. increase@ raise
b. increase@ lo"er
c. decrease@ raise
d. decrease@ lo"er
____ 8-. &he quantit' demanded of mone' is
a. in)ersel' related to the interest rate.
b. directl' related to the interest rate.
c. in)ersel' related to the general price le)el.
d. in)ersel' related to <*+.
e. a4 c4 and d
____ 81. &he quantit' supplied of mone' is assumed #in the textboo3$ to be
a. in)ersel' related to the interest rate.
b. directl' related to the interest rate.
c. independent of the interest rate.
d. largel' determined b' the Fed.
e. c and d
____ 82. (ccording to the Ee'nesian transmission mechanism #and assuming there is no liquidit' trap and in)estment
is not interest insensiti)e$4 if the mone' suppl' rises4 the interest rate __________4 in)estment spending
__________ and the (* cur)e shifts to the __________.
a. falls@ falls@ left
b. rises@ rises@ right
c. falls@ rises@ left
d. falls@ rises@ right
e. rises@ falls@ right
____ 83. (ssume the Ee'nesian transmission mechanism is operational and the econom' is currentl' operating in the
horiContal portion of the SR(S cur)e. 2f the mone' suppl' rises and the demand for mone' cur)e is
do"n"ard sloping and in)estment is interest __________4 then Real <*+ "ill __________.
a. sensiti)e@ rise
b. insensiti)e@ remain unchanged
c. sensiti)e@ remain unchanged
d. insensiti)e@ rise
e. a and b
____ 8/. (.!. +hillips collected data on the rate of change in mone' "ages and plotted it against unemplo'ment rates
in the Gnited Eingdom. &he cur)e he fit to the data sho"ed that
a. the rate of change of mone' "age rates and unemplo'ment rates "ere in)ersel' related.
b. the rate of change of mone' "age rates and unemplo'ment rates "ere directl' related.
c. the rate of change of mone' "age rates and unemplo'ment rates "ere independent.
d. as mone' "age rates increased4 the unemplo'ment rate "as cut in more than half.
____ 8,. &he short-run +hillips cur)e holds that
a. high inflation and high unemplo'ment can occur together.
b. lo" inflation and lo" unemplo'ment can occur together.
c. high inflation and lo" unemplo'ment can occur together.
d. b and c
Exhibit 15-1
____ 80. Refer to Exhibit 1,-1. Suppose the econom' is currentl' at point ( on the short-run +hillips cur)e4 SR+1.
!hat could get the econom' to mo)e to point B%
a. an increase in aggregate demand combined "ith an unchanged expected inflation rate
b. an increase in aggregate demand combined "ith a rise in the expected inflation rate
c. a rise in the expected inflation rate
d. a decrease in aggregate demand combined "ith an unchanged expected inflation rate
Exhibit 15-2
____ 88. Refer to Exhibit 1,-2. Suppose the econom' starts at point (. Fed monetar' polic' shifts the (* cur)e to
(*2. ( boom is li3el' if the econom' operates under __________ assumptions4 "hich include "age and price
__________.
a. ne" classical@ flexibilit'
b. ne" classical@ inflexibilities
c. ne" Ee'nesian@ flexibilit'
d. ne" Ee'nesian@ inflexibilities
____ 81. &he difference bet"een ne" classical theor' and ne" Ee'nesian theor' is that
a. in ne" classical theor' "ages are assumed to be flexible4 and in ne" Ee'nesian theor'
"ages are assumed to be some"hat inflexible.
b. in ne" classical theor' "ages are assumed to be some"hat inflexible4 and in ne"
Ee'nesian theor' "ages are assumed to be flexible.
c. adapti)e expectations is the dominant expectations theor' in ne" classical theor'4 and
rational expectations is the dominant expectations theor' in ne" Ee'nesian theor'.
d. in ne" Ee'nesian theor' the short-run aggregate suppl' cur)e is )ertical4 and in ne"
classical theor' the short-run aggregate suppl' cur)e is up"ard sloping.
____ 89. (ccording to a ne" Ee'nesian theorist4 a correctl' anticipated increase in aggregate demand "ill
a. cause the price le)el to increase b' a greater amount in the short run than "hat a ne"
classical rational expectations theorist "ould predict.
b. cause the price le)el to increase b' a smaller amount in the short run than "hat a ne"
classical rational expectations theorist "ould predict.
c. cause the price le)el to increase b' the same amount in the short run that a ne" classical
rational expectations theorist "ould predict.
d. lea)e the price le)el unchanged in the short run4 but Real <*+ "ill increase more than
"hat a ne" classical theorist "ould predict.
e. lea)e the price le)el unchanged in the short run4 but Real <*+ "ill increase less than "hat
a ne" classical theorist "ould predict.
Exhibit 15-3
____ 1-. Refer to Exhibit 1,-3. &he econom' is at point (. (s the result of an unexpected increase in aggregate
demand4 in the short run4 the Friedman natural rate theor' "ould predict
a. mo)ement to point B.
b. mo)ement to point .
c. mo)ement to point =.
d. no mo)ement from point (.
____ 11. 2f there is a stable do"n"ard-sloping +hillips cur)e4 it follo"s that an econom' can choose the combination
of
a. high unemplo'ment and lo" inflation.
b. lo" unemplo'ment and high inflation.
c. moderate unemplo'ment and moderate inflation.
d. lo" inflation and lo" unemplo'ment.
e. a4 b4 and c
____ 12. &he expected inflation rate is equal to the actual inflation rate. (ccording to the #Friedman$ natural rate
theor'4 the econom' is
a. in a recessionar' gap.
b. in an inflationar' gap.
c. at a point on the short-run +hillips cur)e4 but not on the long-run +hillips cur)e.
d. biased to"ard producing a higher percentage of ser)ices than goods.
e. producing ?atural Real <*+.
____ 13. ountries tend to specialiCe in the production of goods in "hich the' ha)e a comparati)e ad)antage because
a. go)ernment officials calculate opportunit' costs and suggest to people "hat the' ought to
produce.
b. people "ant to ma3e a profit.
c. the Economic *e)elopment ;ffice of the Gnited ?ations hires economic experts to
calculate the opportunit' costs of different goods in different countries and then suggests to
countries "hat the' ought to produce.
d. the !orld &rade ;rganiCation hires economic experts to calculate the opportunit' costs of
different goods in different countries and then suggests to countries "hat the' ought to
produce.
____ 1/. B*umpingB refers to
a. the sale of goods abroad at a price belo" their cost and belo" the price charged in the
domestic mar3et.
b. unloading of foreign goods on domestic doc3s.
c. go)ernment actions to remed' BunfairB trade practices.
d. bu'ing goods at lo" prices in foreign countries and selling them at high prices in the
Gnited States.
____ 1,. ( tariff is a
a. tax imposed on domestic producers of export goods.
b. legal limit on the amount of a good that can be imported.
c. tax imposed on imported goods.
d. legal limit on the amount of a good that can be produced b' foreign o"ners of a firm
located in a host countr'.
____ 10. ( quota is
a. a tax imposed on imported goods.
b. a legal limit on the amount of a good that can be produced b' foreign o"ners of a firm
located in a host countr'.
c. a legal limit on the amount of a good that can be imported.
d. an agreement bet"een t"o countries in "hich the exporting countr' )oluntaril' agrees to
limit its exports to the importing countr'.
____ 18. Suppose that a tariff is imposed on imported cheese. &his "ill ha)e the effect of __________ the quantit'
consumed of cheese4 __________ consumers= surplus4 and __________ the go)ernment=s tariff re)enues.
a. increasing@ increasing@ increasing
b. decreasing@ decreasing@ increasing
c. increasing@ decreasing@ decreasing
d. decreasing@ increasing@ increasing
e. decreasing@ increasing@ decreasing
____ 11. E)idence indicates that tariffs and quotas are
a. beneficial for producers in a protected industr'4 but not beneficial for the "or3ers in the
industr'.
b. beneficial for producers in a protected industr'4 but not beneficial for consumers.
c. beneficial for "or3ers in a protected industr'4 but not beneficial for consumers.
d. not beneficial for the "or3ers in a protected industr' or for consumers.
e. b and c
Exhibit 18-
____ 19. Refer to Exhibit 11-0. !hich of the follo"ing is true%
a. ( has a comparati)e ad)antage in both cheese and "ine.
b. B has a comparati)e ad)antage in both cheese and "ine.
c. ( has a comparati)e ad)antage in cheese4 and B has a comparati)e ad)antage in "ine.
d. B has a comparati)e ad)antage in cheese4 and ( has a comparati)e ad)antage in "ine.
____ 9-. &he ans"er isH B&he difference bet"een the price bu'ers pa' for a good and the maximum or highest price
the' "ould ha)e paid for the good.B &his is the definition for
a. taxes.
b. producers= surplus.
c. consumers= surplus.
d. the sum of producers= and consumers= surpluses.
e. the "elfare triangle.
____ 91. Smith argues that (merican producers cannot compete "ith foreign producers because "ages are lo"er in
foreign countries than in the Gnited States. Smith is
a. ad)ancing the foreign-export-subsidies argument for protectionism.
b. ma3ing the mista3e of belie)ing that high "ages mean high costs.
c. ad)ancing the anti-dumping argument for protectionism.
d. ma3ing the mista3ing of belie)ing that producti)it' is higher in foreign countries than in
the Gnited States.
____ 92. ( countr' has a #an$ __________ in the production of a good it produces at lo"er opportunit' cost than
another countr'.
a. absolute ad)antage
b. specialiCation disad)antage
c. tariff-efficient ad)antage
d. infant-industr' ad)antage
____ 93. !hen exports of (merican goods increase4 this __________ the demand for G.S. dollars and at the same time
__________ foreign currencies.
a. increases@ increases the suppl' of
b. decreases@ increases the suppl' of
c. increases@ decreases the suppl' of
d. increases@ increases the demand for
____ 9/. &he >exican demand for (merican goods leads to
a. the demand for >exican pesos and the suppl' of G.S. dollars on the foreign exchange
mar3et.
b. the demand for G.S. dollars and the demand for >exican pesos on the foreign exchange
mar3et.
c. the demand for G.S. dollars and the suppl' of >exican pesos on the foreign exchange
mar3et.
d. the demand for G.S. dollars and the suppl' of G.S. dollars on the foreign exchange mar3et.
____ 9,. 2f countr' ( has a Bmerchandise trade deficit4B then
a. producers in countr' ( ha)e sold more than the' produced in a gi)en 'ear and therefore
"ill experience an increase in in)entories.
b. consumers in countr' ( ha)e bought more products from their o"n nation than from other
countries.
c. consumers in countr' ( ha)e bought more products from other countries than from their
o"n nation.
d. consumers in countr' ( ha)e bought more of other countries= products than other countries=
consumers ha)e bought of countr' (=s products.
e. consumers in other countries ha)e bought more of countr' (=s products than countr' (=s
consumers ha)e bought of other countries= products.
Figure 3-2
____ 90. !e"er to Fi#ure 3-2. Ben has a comparati)e ad)antage in
a. cones and Derr' has a comparati)e ad)antage in ice cream.
b. ice cream and Derr' has a comparati)e ad)antage in cones.
c. neither good and Derr' has a comparati)e ad)antage in both goods.
d. both goods and Derr' has a comparati)e ad)antage in neither good.
For the follo"ing question#s$4 use the accompan'ing table.
Table 3-2
Aabor Iours needed to ma3e one (mount produced in 9- hoursH
.uilt *ress .uilts *resses
Ielen ,- 1- 1.1 9
arol'n 9- /, 1 2
____ 98. !e"er to $able 3-2. Ielen has a comparati)e ad)antage in
a. quilts and arol'n has an absolute ad)antage in neither good.
b. dresses and arol'n has an absolute ad)antage in quilts.
c. quilts and arol'n has an absolute ad)antage in dresses.
d. dresses and arol'n has an absolute ad)antage in neither good.
Table 3-3
Aabor Iours ?eeded to >a3e ;neH
(mount +roduced in 2/ IoursH
Bas3et Birdhouse Bas3ets Birdhouses
>ontana 0 2 / 12
>issouri 3 1., 1 10
____ 91. !e"er to $able 3-3. 2f >ontana and >issouri "ere to specialiCe and engage in trade that "ould benefit both
states4 the' "ould most li3el' base their decisions on the principle of
a. absolute ad)antage.
b. comparati)e ad)antage.
c. maximum opportunit' cost.
d. Cero-sum trade.
____ 99. 2f 2o"aJs opportunit' cost of corn is lo"er than ;3lahomaJs opportunit' cost of corn4 then
a. 2o"a has a comparati)e ad)antage in the production of corn.
b. 2o"a has an absolute ad)antage in the production of corn.
c. 2o"a should import corn from ;3lahoma.
d. ;3lahoma should produce :ust enough corn to satisf' its o"n residentsJ demands.
____ 1--. Suppose the Gnited States has a comparati)e ad)antage o)er >exico in producing por3. &he principle of
comparati)e ad)antage asserts that
a. the Gnited States should produce more por3 than "hat it requires and export some of it to
>exico.
b. the Gnited States should produce a moderate quantit' of por3 and import the remainder of
"hat it requires from >exico.
c. the Gnited States should refrain altogether from producing por3 and import all of "hat it
requires from >exico.
d. >exico has nothing to gain from importing Gnited States por3.
APMacroPracFINAL
A%&'er (ectio%
M)L$IPLE C*+ICE
1. (?SH B +&SH 1 *2FH *ifficult ?(&H (nal'tic
A;H Suppl' and demand
2. (?SH ( +&SH 1 *2FH *ifficult ?(&H (nal'tic
3. (?SH +&SH 1 *2FH >oderate ?(&H (nal'tic
A;H Equilibrium
/. (?SH B +&SH 1 *2FH *ifficult ?(&H (nal'tic
,. (?SH * +&SH 1 *2FH Eas' ?(&H (nal'tic
0. (?SH ( +&SH 1 *2FH >oderate ?(&H (nal'tic
A;H Gnemplo'ment and inflation ?;&H ?E!
8. (?SH * +&SH 1 *2FH Eas' ?(&H (nal'tic
A;H Gnemplo'ment and inflation
1. (?SH +&SH 1 *2FH Eas' ?(&H (nal'tic
9. (?SH ( +&SH 1 *2FH Eas' ?(&H (nal'tic
1-. (?SH ( +&SH 1 *2FH Eas' ?(&H (nal'tic
A;H >easuring the Econom'
12. (?SH B +&SH 1 *2FH >oderate ?(&H (nal'tic
1/. (?SH B +&SH 1 *2FH Eas' ?(&H (nal'tic
1,. (?SH * +&SH 1 *2FH >oderate ?(&H (nal'tic
10. (?SH * +&SH 1 *2FH Eas' ?(&H (nal'tic
A;H (ggregate demand and aggregate suppl'
18. (?SH * +&SH 1 *2FH *ifficult ?(&H (nal'tic
11. (?SH B +&SH 1 *2FH Eas' ?(&H (nal'tic
2-. (?SH +&SH 1 *2FH >oderate ?(&H (nal'tic
21. (?SH * +&SH 1 *2FH >oderate ?(&H (nal'tic
A;H Gnderstanding and appl'ing economic models
2/. (?SH +&SH 1 *2FH >oderate ?(&H (nal'tic
2,. (?SH B +&SH 1 *2FH >oderate ?(&H (nal'tic
3-. (?SH ( +&SH 1 *2FH >oderate ?(&H (nal'tic
33. (?SH B +&SH 1 *2FH Eas' ?(&H (nal'tic
30. (?SH E +&SH 1 *2FH >oderate ?(&H (nal'tic
31. (?SH ( +&SH 1 *2FH Eas' ?(&H (nal'tic
A;H >onetar' and fiscal polic'
39. (?SH * +&SH 1 *2FH *ifficult ?(&H (nal'tic
/-. (?SH ( +&SH 1 *2FH >oderate ?(&H (nal'tic
/1. (?SH ( +&SH 1 *2FH >oderate ?(&H (nal'tic
/2. (?SH E +&SH 1 *2FH *ifficult ?(&H (nal'tic
/3. (?SH ( +&SH 1 *2FH >oderate ?(&H (nal'tic
//. (?SH +&SH 1 *2FH Eas' ?(&H (nal'tic
A;H &he role of mone'
/,. (?SH ( +&SH 1 *2FH >oderate ?(&H (nal'tic
/0. (?SH +&SH 1 *2FH >oderate ?(&H (nal'tic
/8. (?SH * +&SH 1 *2FH *ifficult ?(&H (nal'tic
/1. (?SH +&SH 1 *2FH >oderate ?(&H (nal'tic
/9. (?SH * +&SH 1 *2FH *ifficult ?(&H (nal'tic
,-. (?SH +&SH 1 *2FH Eas' ?(&H (nal'tic
,1. (?SH B +&SH 1 *2FH Eas' ?(&H (nal'tic
A;H &he role of go)ernment
,2. (?SH E +&SH 1 *2FH >oderate ?(&H (nal'tic
,3. (?SH ( +&SH 1 *2FH >oderate ?(&H (nal'tic
,/. (?SH +&SH 1 *2FH >oderate ?(&H (nal'tic
,,. (?SH * +&SH 1 *2FH >oderate ?(&H (nal'tic
,0. (?SH * +&SH 1 *2FH >oderate ?(&H (nal'tic
,8. (?SH B +&SH 1 *2FH >oderate ?(&H (nal'tic
,1. (?SH * +&SH 1 *2FH >oderate ?(&H (nal'tic
,9. (?SH B +&SH 1 *2FH >oderate ?(&H (nal'tic
A;H Gnderstanding and (ppl'ing Economic >odels
0-. (?SH E +&SH 1 *2FH *ifficult ?(&H (nal'tic
0/. (?SH ( +&SH 1 *2FH Eas' ?(&H (nal'tic
08. (?SH +&SH 1 *2FH *ifficult ?(&H (nal'tic
81. (?SH E +&SH 1 *2FH Eas' ?(&H (nal'tic
8,. (?SH +&SH 1 *2FH Eas' ?(&H (nal'tic
A;H 2nternational trade and finance
1,. (?SH +&SH 1 *2FH Eas' ?(&H (nal'tic
9-. (?SH +&SH 1 *2FH >oderate ?(&H (nal'tic
92. (?SH E +&SH 1 *2FH Eas' ?(&H (nal'tic
90. (?SH ( +&SH 1 *2FH 2 REFH 3-2
&;+H omparati)e ad)antage >SH (pplicati)e
98. (?SH * +&SH 1 *2FH 3 REFH 3-2
&;+H (bsolute ad)antage K omparati)e ad)antage >SH (pplicati)e
91. (?SH B +&SH 1 *2FH 1 REFH 3-2
&;+H omparati)e ad)antage K &rade >SH 2nterpreti)e
99. (?SH ( +&SH 1 *2FH 2 REFH 3-2
&;+H ;pportunit' cost K omparati)e ad)antage >SH 2nterpreti)e
1--. (?SH ( +&SH 1 *2FH 1 REFH 3-3
&;+H &rade K omparati)e ad)antage >SH 2nterpreti)e

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